Companies with more cash than debt can be financially resilient, but that doesn’t mean they’re all strong investments. Some lack leverage because they struggle to grow or generate consistent profits, making them unattractive borrowers.
Just because a business has cash doesn’t mean it’s a good investment. Luckily, StockStory is here to help you separate the winners from the losers. That said, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
Ruger (RGR)
Net Cash Position: $80.2 million (15.4% of Market Cap)
Founded in 1949, Ruger (NYSE: RGR) is an American manufacturer of firearms for the commercial sporting market.
Why Is RGR Risky?
- Lackluster 1.4% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Low free cash flow margin of 6.9% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Ruger is trading at $32.87 per share, or 21.1x forward P/E. Read our free research report to see why you should think twice about including RGR in your portfolio.
Rocket Lab (RKLB)
Net Cash Position: $291.3 million (0.8% of Market Cap)
Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ: RKLB) offers rockets designed for launching small satellites.
Why Does RKLB Worry Us?
- Poor expense management has led to operating margin losses
- Earnings per share have dipped by 33.4% annually over the past three years, which is concerning because stock prices follow EPS over the long term
- Cash burn makes us question whether it can achieve sustainable long-term growth
Rocket Lab’s stock price of $69.91 implies a valuation ratio of 47.8x forward price-to-sales. If you’re considering RKLB for your portfolio, see our FREE research report to learn more.
Cathay General Bancorp (CATY)
Net Cash Position: $1.96 billion (59.6% of Market Cap)
Founded in 1962 with its first branch in Los Angeles' Chinatown, Cathay General Bancorp (NASDAQ: CATY) operates Cathay Bank, providing commercial banking services to businesses and individuals with a strong presence in Asian-American communities.
Why Are We Hesitant About CATY?
- Sales tumbled by 1.7% annually over the last two years, showing market trends are working against its favor during this cycle
- Muted 5.4% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Sales were less profitable over the last two years as its earnings per share fell by 7.5% annually, worse than its revenue declines
At $48.40 per share, Cathay General Bancorp trades at 1.1x forward P/B. Check out our free in-depth research report to learn more about why CATY doesn’t pass our bar.
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